Commentary

American Express goes down market with Wal-Mart

Commentary: A credible threat to traditional banking

By

CarolKopp

SWARTHMORE, Penn. (MarketWatch) — American Express Co. has taken an unexpected down-market turn by creating a card for Wal-Mart Stores Inc. shoppers. In fact, the new Bluebird card is designed for the least affluent among them, the “unbanked” and the “under-banked.”

Both companies may see an opportunity down the road among the anti-bank — that is, consumers who are fed up with their banks’ fees and won’t take it anymore if any other practical option is available.

“Our customers tell us that they are tired of navigating a complex maze of do’s and don’ts to avoid the ever-growing list of fees found on checking products,” Daniel Eckhert, vice president of financial services for Wal-Mart US, said in the statement by the two companies.

Bluebird, announced Monday, is a prepaid card with some of the attributes of a digital wallet. It aims to provide the most basic financial services to people who don’t have a checking account. They’ll be doing their banking instead at Walmart
WMT, -1.58%
, right at the checkout counter.

The Bluebird card will offer check deposits and bill payments via a mobile phone app, as well as direct payroll deposits and person-to-person payments. It can be used to get cash at ATMs or to make purchases at any store that takes American Express. They even get some of the usual Amex bennies like roadside assistance.

It does not have paper checks or overdraft privileges, as a checking account does.

But it also lacks many of the fees that banks charge on checking accounts, such as monthly or annual fees. The only fees evident in the announcement are avoidable: a $2 charge for transferring money from a debit card and a fee for out-of-network ATM withdrawals.

In the announcement, the companies cite a study that estimates that Americans now pay an average $259 for basic checking account services.

That is, of course, the people who have checking accounts. About 8%, or 17 million Americans, don’t have a bank account, according to a 2009 report by the Federal Deposit Insurance Corp. Another 18%, or 43 million, are “under-banked.” They have accounts but still sometimes rely on check-cashing companies, pawn shops and pay-day loan outfits to get by.

More importantly for this struggling population, Bluebird doesn’t pile on dubious extra fees, like “activation” charges or a charge for checking a balance. These are common practices in the prepaid card industry, which is largely unregulated and aims its marketing straight at a vulnerable population, people with low incomes and poor credit ratings.

For American Express
AXP, -1.49%
, it means new customers in unfamiliar territory. They may not be big spenders, but there are a lot of them. For Walmart, it means more store visits by people who will do their banking at store checkouts, not a bad way to get a bigger slice of customers’ spending.

According to The New York Times, the big banks are beginning to market prepaid cards more aggressively, in part because this corner of financial services is not covered by Dodd-Frank consumer protection regulations, in effect since 2010.

That loophole may not last long. The Consumer Financial Protection Bureau is considering restrictions on prepaid cards, the Times reported.

Investors’ reaction was quick and ugly for a couple of related stocks: Green Dot Corp.
GDOT, -0.28%
was down 20% at the close of the trading day Monday. The company derives about 60% of its revenue from Walmart shoppers, through the Walmart-branded Money Card and its own GPR card. NetSpend Holdings
US:NTSP
was down more than 7%. It markets prepaid cards branded by Visa
V, -1.12%
and Mastercard
MA, -1.13%
to that same under-banked population.

But the reaction wasn’t widespread. On a generally down day on Wall Street, the Financial Select Sector SPDR ETF
XLF, -1.72%
which tracks financial stocks in the S&P 500
SPX, -1.54%
fell just 0.06%. American Express was the only major financial stock that gained, by 0.44%.

Industry analysts seem underwhelmed. One banking industry consultant was surprised to hear that the average consumer pays bank fees at all; His checking account is free. He may be unaware that many Americans can’t or won’t keep an account balance high enough to get the free stuff.

It’s worth considering whether the new Bluebird card may be just the ticket for some better-heeled consumers who are fed up with fees. With its 21st century addition of mobile payments and remote deposits, it might particularly appeal to young consumers just entering the workforce.

After all, they’ve tossed other traditional props, from wristwatches to paperback books. Why not checking accounts?

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